Govt notifies uniform norms for startups

Under the new norms, a budding entrepreneur with a turnover of less than Rs 25 crore can avail tax breaks and other benefits for a five-year period.PTI | Updated: February 23, 2016, 09:13 IST

The government has come out with a uniform definition of startups under which a budding entrepreneur with a turnover of less than Rs 25 crore can avail tax breaks and other benefits for a five-year period.

Notifying the definition, the Department of Industrial Policy and Promotion (DIPP) said it would bring about "uniformity" and ensure that only genuine startups get the benefits.

It further said that entities formed by splitting or re-construction of existing businesses will not be considered as startups.

"In order to obtain tax benefits a startup so identified under the above definition shall be required to obtain a certificate of an eligible business from the Inter-Ministerial Board of Certification," DIPP said in a notification.

The Board would consist of Joint Secretary, DIPP, Representatives of Department of Science and Technology, and Department of Biotechnology.

The process of recognition as a 'startup' would be through mobile app/portal of the DIPP.

Startups will also be required to submit a simple application with certain documents including a letter of funding of not less than 20 per cent in equity by any incubation fund/angel fund/private equity fund/ duly registered with SEBI that endorses innovative nature of the business.

It further added that "to bring uniformity in the identified enterprises, an entity shall be considered as a 'startup- Up to five years from the date of its registration; if its turnover for any of the financial years has not exceeded Rupees 25 crore.

"... it is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property," it added.

In order to encourage startups, an expert said the government should provide adequate tax benefits in the forthcoming Budget.

"Tax exemptions and incentives are required to be given (for startups) i.e. exempting deemed tax on capital investments, exempting the businesses from paying service tax/VAT.

"Further it can also look at taxing only realised gains and provide mechanism to defer tax on ESOPS and share swaps," Krishan Malhotra, Partner and national Practice Head, Tax, Shardul Amarchand Mangaldas & Co. said.

Prime Minister Narendra Modi on January 16 unveiled a slew of incentives to boost start-up businesses, offering them a tax holiday and inspector raj-free regime for three years, capital gains tax exemption and Rs 10,000 crore corpus to fund them.